Will Citi (C) Loan KKR Money To Buy The Bank's Distressed Loans?

The FT writes that "Citigroup (C) is in talks with KKR to provide financing to buy some of the leveraged loans on its balance sheet."

Firms like KKR want to buy the "below market value" leveraged loans that banks like Citi want off their balance sheets. But, these are loans that were made for private equity buy-outs that KKR and its peers arranged.

The FT adds that there are rumours that the combined firepower of all the funds being raised to buy leveraged buy-out debt could equal as much as $170 billion, which compares with the estimated $300 billlion of funding banks have committed to private equity firms.

All of this smells a little. If the distressed assets have a value to KKR, the banks should be able to use these numbers and mark their loans to market. Citi and others take a one-time write off and continue to own the loans.

KKR wants to buy things that it believes will increase in value. That is exactly why the banks should not sell them. And, they certainly should do nothing to finance the purchase of their own troubled assets.